DBS Group CEO Piyush Gupta said the bank’s wealth management and capital markets businesses continue to see “headwinds” despite the bank reporting strong second-quarter earnings.
“Business momentum is a little mixed. Our corporate lending activities are actually doing quite well. And so balance sheets continue to grow,” Gupta told CNBC’s “Capital Connection” after the bank’s results were released Thursday.
“Private bank clients have been reluctant to put money to work, which is clearly a challenge. Headwinds in wealth management and capital markets mean overall fee income … is down year-on-year,” he added.
DBS, Southeast Asia’s largest bank, reported that net fee income fell 12% in the second quarter due to lower contributions from wealth management and investment banking compared to a year earlier.
First-half net fee income fell 9% from a year earlier to S$1.66 billion ($1.2 billion). Wealth management fees fell 21% to S$745 million as weaker market conditions led to lower sales of investment products, DBS said. Investment banking fees also fell 36% to S$73 million as capital market activity slowed.
Gupta said the outlook for the wealth management business remains uncertain given the current market sentiment.
“If the markets start to turn around and you start to see more animal spirits, we may do some more capital markets deals – and wealth management, private banking clients may become more active,” the CEO said.
“But, like I said, at this point in time, I’m not holding my breath about that happening,” he added.
On Thursday, DBS reported that net profit rose to $1.82 billion in the April-June period from $1.7 billion a year earlier. That’s higher than the average forecast of US$1.69 billion, according to data from Refinitiv.
The bank’s net interest margin rose to 1.58% in the quarter, from 1.45% a year ago.
“Net interest margin, which had been declining since 2019, increased in the first quarter as interest rates began to rise, and the improvement accelerated in the second quarter. Net interest margin for the first half was 1.52 %, five basis points higher than a year ago,” DBS said in its report.
Gupta said the increase in net interest margin was the “biggest story”, noting the sharp growth. He noted forecasts for net interest margin “in the third and fourth quarters are quite strong.”
“And if that’s the case, then yes, it’s the net interest margin growth story that will drive the business forward,” Gupta said.
DBS said the board has declared an interim dividend at a tax-free level of 36 cents per DBS ordinary share for the second quarter of 2022.